Analysts warn of UK consumer credit crunch

THE extraordinary rate of growth of UK consumer debt has become a ‘serious problem’ according to a group of the world’s leading experts in credit. The group also suggested a soft rather than hard Brexit and restricting lending criteria could improve financial stability.

About 74% of the 200 credit control specialists questioned at the University of Edinburgh Business School’s biennial Credit Risk and Credit Scoring Conference said the Bank of England was right to be concerned about increasing levels of UK consumer debt, labelling them a serious problem.

Two thirds (66%) predict that another credit crunch is likely to happen by 2022 and more than a third (38%) believe a financial crisis could hit even sooner – within the next three years. The Bank of England announced in July that unsecured consumer credit has risen to £200bn for the first time since 2008.

Professor Jonathan Crook, Director of the Credit Research Centre at the University of Edinburgh Business School, told Credit Today that, looking at the new survey findings, he expects volumes of lending to increase over the next five years. “It’s impossible at present to put a figure on how much they will increase by at this stage, however,” he said.

Brexit worries

When asked about Brexit, almost three quarters of the global finance specialists (73%) predict the UK’s departure from the EU will harm consumer and businesses’ ability to obtain credit when they need it. The majority (83%) said the Eurozone will suffer significant aftershocks from Brexit, with 42% reporting these would still be felt beyond 2020.

There is overwhelming support for a soft Brexit as a means of keeping the economy in check – 52% say soft Brexit would improve financial stability in the next 12 months compared to 6% for a hard Brexit.

Crook added: “The view of our expert delegation echoes concerns that have been expressed recently by the Bank of England about lenders being complacent about consumer lending levels.

“In terms of interest rate rises, reality may bite sooner than expected if lenders, concerned about an increased incidence of consumer defaults, increase interest rates to help off-set the risk. “

The research was conducted at the University of Edinburgh Business School’s biennial Credit Risk and Credit Control Conference where 350 of the world’s expert practitioners and academics in credit came together to debate new research and innovations that will shape the way individuals and businesses can access, or be denied, credit in the coming months and years.

Credit Today adds: “Have lessons been learned from the credit crunch of the period 2007-09? Time will tell. The right balance needs to be found between acceptable credit granting and excessive burdens on the consumer, which, if history says anything, will only hit lenders in due course. We are grateful to professor Crook for allowing our attendance at the recent Edinburgh conference.”